Global upstream investments in oil and gas exploration, extraction, and production are on course to reach their highest levels since 2015, growing 11 percent year-on-year to $528 billion this year, according to the IEA.
The International Energy Agency, a Paris-based think tank, said that if major oil producers maintain their plans to build up capacity even as demand growth slows, this would result in a spare capacity cushion of at least 3.8 million barrels per day (bpd) concentrated in the Middle East.
The IEA said a number of factors could affect market balances over the medium term – including uncertain global economic trends, the direction of OPEC+ decisions, and China’s refining industry policy.
“Oil-producing countries outside the OPEC+ alliance dominate plans for increasing global supply capacity in the medium term, with an expected rise of 5.1 million bpd by 2028 led by the United States, Brazil, and Guyana,” IEA said.
“Saudi Arabia, the United Arab Emirates, and Iraq lead the plans for capacity building within OPEC+, while African and Asian members are set to struggle with continuing declines, and Russian production falls due to sanctions.”
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This makes for a net capacity gain of 0.8 million bpd from the 23 members in OPEC+ overall over the report’s forecast period.
In the refining sector, the IEA said the overhang in global capacity has been reduced by waves of closures, conversions to biofuel plants and project delays since the pandemic.
“This, combined with a sharp drop in Chinese oil product exports and an upheaval of Russian trade flows, resulted in record profits for the industry last year,” IEA said.
“While the amount of net refinery capacity additions by 2028 is expected to outpace demand growth for refined products, diverging trends among products means that a repeat of the 2022 tightness in middle distillates cannot be ruled out.”
